CITY OF SAN BERNARDINO
MUNICIPAL WATER DEPARTMENT
Single Audit Report
For the Year Ended June 30, 2025
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CITY OF SAN BERNARDINO
MUNICIPAL WATER DEPARTMENT
Single Audit Report
For the Year Ended June 30, 2025
DRAFT
CITY OF SAN BERNARDINO
MUNICIPAL WATER DEPARTMENT
Single Audit Report
For the Year Ended June 30, 2025
Table of Contents
Page
Number
Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .......................................................................................... 1 Independent Auditors’ Report on Compliance for Each Major Program and on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance ........................................................................................................ 3 Schedule of Expenditures of Federal Awards for the
Year Ended June 30, 2025 ....................................................................................................................... 6 Notes to the Schedule of Expenditures of Federal Awards .................................................................................... 7 Schedule of Findings and Questioned Costs for the
Year Ended June 30, 2025 ................................................................................................................................. 8 Summary Schedule of Prior Year Findings and Questioned Costs for the Year Ended June 30, 2024 ............................................................................................................................... 10 DRAFT
LSLCPAS.COM
INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON
COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the Water Board
San Bernardino Municipal Water Department
San Bernardino, California
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of each major fund of the San Bernardino Municipal Water Department (hereafter, the “Department”) , a component unity of the City of San Bernardino, California, as of and for the year ended June 30, 2025, and the related notes to the financial statements, which collectively comprise the Department’s basic financial statements, and have issued our report thereon dated __________, 2025.
Report on Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Department’s internal control over financial reporting (internal control) as a basis for designing audit pr ocedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Department’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Department’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their ass igned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a ma terial weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or signif icant deficiencies may exist that were not identified. We identified a certain deficiency in internal control, described in the accompanying schedule of findings and questioned costs as item 2025-001 that we consider to be a material weakness.
Report on Compliance and Other Matters
As part of obtaining reasonable assurance ab out whether the Department’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express su ch an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
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To the Water Board
San Bernardino Municipal Water Department
San Bernardino, California
Department’s Response to Findings
Government Auditing Standards requires the auditor to perform limited procedures on the Department’s response to the findings identified in our audit and described in the accompanying schedule of findings and questioned costs.
The Department’s response was not subjected to the other auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the response.
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Department’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Department’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Irvine, California
_________, 2025
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2 INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM
AND ON INTERNAL CONTROL OVER COMPLIANCE AND REPORT ON SCHEDULE OF EXPENDITURES OF
FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE
To the Water Board
San Bernardino Municipal Water Department
San Bernardino, California
Report on Compliance for Each Major Federal Program
Opinion on Each Major Federal Program
We have audited the San Bernardino Municipal Water Department (hereafter, the Department)’s compliance with the types of compliance requirements identified as subject to audit in the OMB Compliance Supplement that could have a direct and material effect on each of the Depart ment’s major federal programs for the year ended June 30, 2025. The Department’s major federal programs are identified in the summary of auditors’ results section of the accompanying schedule of findings and questioned costs.
In our opinion, the Department complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2025.
Basis for Opinion on Each Major Federal Program
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United Stat es; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Our responsi bilities under those standards and the Uniform Guidance are further described in the Auditors’ Responsibilities for the Audit of Compliance section of our report.
We are required to be independent of the Department and to meet our other ethical responsibilities, in accordance with relevant ethical requirements relat ing to our audit. We believe that the a udit evidence we have obtained is sufficient and appropriate to provide a basis for our o pinion on compliance for each major federal program. Our audit does not provide a legal determination of the Depart ment’s compliance with the compliance requirements referred to above.
Responsibilities of Management for Compliance
Management is responsible for complian ce with the requirements referr ed to above and for the design, implementation, and maintenance of effective internal contr ol over compliance with the requirements of laws, statutes, regulations, rules, and provisions of contracts or grant agreements applicable to the Department’s federal programs.
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To the Water Board
San Bernardino Municipal Water Department
San Bernardino, California
Auditors’ Responsibilities for the Audit of Compliance
Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion on the Department’s compliance based on our audit. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards, Government Auditing Standards , and the Uniform Guidance will always detect material noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Noncompliance with the compli ance requirements referred to above is considered material if there is a substantial likelihood that, individually or in the aggregate, it would influence the judgment made by a reasonable user of the report on compliance about the Department’s compliance with the requirements of each major federal program as a whole.
In performing an audit in accordance with generally accepted auditing standards, Government Auditing Standards, and the Uniform Guidance, we:
x Exercise professional judgment and maintain pr ofessional skepticism throughout the audit. x Identify and assess the risks of ma terial noncompliance, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the Department’s compliance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances. x Obtain an understanding of the Department’s internal co ntrol over compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances and to test and report on internal control over compliance in accordance with the Unifor m Guidance, but not for the purpose of expressing an opinion on the effectiveness of the Department’s internal control over compliance. Accordingly, no such opinion is expressed.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficien cies and material weaknesses in internal control over compliance that we identified during the audit.
Report on Internal Control over Compliance
A deficiency in internal control over com
pliance exists when the design or operat ion of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis.
A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.
Our con
sideration of internal control over compliance was for the limited purpos e described in the Auditor’s Responsibilities for the Audit of Compliance section abov e and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies in internal control over compliance. Given these limitation s, during our audit we did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not identified.
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4 To the Water Board
San Bernardino Municipal Water Department
San Bernardino, California
Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, no such opinion is expressed.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the re quirements of the Uniform Guidance.
Accordingly, this report is not suitable for any other purpose.
Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of each major fu nd of the Department, as of and for the year ended June 30, 2025, and the related notes to the financial statements, which collectively comprise the Department’s basic financial statements. We issued our report thereon dated _________, 2025, which contained unmodified opinions on those financial statements. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The ac companying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such inf ormation is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the audit ing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare th e basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole.
Irvine, California
_________, 2025
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5 SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2025
Federal
Assistance Program
Federal Grantor/Pass-Through Grantor/Program Title Listing Number Expenditures U.S. Department of Treasury
Direct Award:
Coronavirus State and Local Fiscal Recovery Funds * 21.027 3,000,000$ Total U.S. Department of Treasury 3,000,000
Environmental Protection Agency
Consent Decree * 66.000
Operations and maintenance:
Newmark 732,663
Muscoy 491,239
Site wide monitoring 102,521
Project management 253,829
Subtotal - Consent Decree 1,580,252
Total Environmental Protection Agency 1,580,252
U.S. Department of Homeland Security
Direct Award:
Hazard Mitigation Grant Program 97.039 2,511,525
Total U.S. Department of the Homeland Security 2,511,525 Total Federal Expenditures 7,091,777$
* Major Program
Note a: Refer to Note 1 to the schedule of expend itures of federal awards for a description of significant accounting policies used in preparing this schedule.
Note b: There was no federal awards expended in the form of noncash assistance and insurance in effect during the year.
Note c: Total amount provided to subr ecipients during the year was $0.
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6 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Notes to the Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2025
NOTE
1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES APPLICABLE TO THE SCHEDULE OF
EXPENDITURES OF FEDERAL AWARDS
A. Sco
pe of Presentation
Th
e accompanying Schedule of Expenditures of Federal Awards (the “Schedule”) includes the federal grant activity of the San Bernardino Municipal Water Department (the "Department"), a component unit of the City of San Bernardino, California (the “City”), under programs of the federal government for the year ended June 30, 2025. The information in this Schedule is presented in accordance with the requir ements of the Uniform Guid ance. Because the Schedule presents only a selected portion of the operations of the Department, it is not intended to and does not present the financial position, changes in net position or cash flows of the Department, nor does it present all federal programs of the City of San Bernardino as a whole.
B. Basis
of Accounting
Expen
ditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance. Under the accrual basis of accounting, expenditures are recognized when incurred. Expenditures reported include any property or equipment acquisitions incurred under the federal program. The Department did not use the de minimis indirect cost rate as covered in section 200.414 of the Uniform Guidance.
NOTE 2: BACKGROUND OF THE CONSENT DECREE
In 1996, the City filed a complaint against the United States of America, Department of the Army (Army) to recover damages, response costs and other available remedies relating to contamination alleged to have originated at a World War II Army installation known as Camp Ono. In March 2005, the United States Department Court, Central Department, entered judgment, in the form of a consent decree (Consent Decree), in the matter of City of San Bernardino v. United States of America. The consent decree settles the City’s and the State’s claims arising from the groundwater contamination allegedly caused by the Army. The Consent Decree contains a number of provisions obligating the City (through the Municipal Water Department) to operate and maintain the Newmark Groundwater Superfund site (Site). The Site consists of two operable units, the Newmark Operable Unit and the Muscoy Operable Unit. The Newmark Operable Unit was declared operational and functional in 1998.
The Consent Decree provided for a payment of $69 million fr om the Army to the City for performance of the work outlined in the consent decree. Upon entry of the Consent Decree, the City, through the Department, received title to all facilities constructed by the United States Environmental Protection Agency (EPA) for the Site and agreed to operate and maintain the groundwater extraction and treatment system for a period of 50 years. The $69 million payment consisted of $59 million for operation and maintenance and $10 million for the construction of certain capital facilities that would be required in th e future. The funds are subject to strict limitations, contained in the Consent Decree, as to how they may be spent.
Pursuant to the Consent Decree, $10 million, including interest earned, has been set aside to be used only for (i
) fu
nding construction of treatment and directly related transmission systems that expanded the Departmen t’s ca
pacity to deliver potable water, and (ii) funding work performed by the Department to complete construction of the Muscoy Operabl
e Unit extraction system. These “capital facility” funds may not be used for costs incurred to operate, ma
intain, repair or retrofit components of the Site extraction or treatment systems constructed by EPA.
In
September 2007, the Muscoy Operable Unit was declared operational and functional .
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7 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2025
SECTION I -
SUMMARY OF AUDITORS' RESULTS
Financial Statements
Ty
pe of auditors' report issued: Unmodified Opinion
Internal control over financial reporting:
x Material weaknesses iden tified? X yes no x
Significant deficiencies identified? yes X none reported Nonc
ompliance material to financial
statements noted? yes X no
Feder
al Awards
Int
ernal control over major programs:
x Material weaknesses identified? yes X no
x
Significant deficiencies identified? yes X none reported T
ype of auditors' report issued on compliance for major programs: Unmodified Opinion Any audit findings disclosed that are required to be
reported in accordance with Title 2 U.S. Code of
Federal Regulations (CFR) Part 200, Uniform
Administrative Requirements, Cost Principles, and
Audit Requirements for Federal Awards (Uniform
Guidance)? yes X no
Ide
ntification of major programs:
Assistance Listing Number(s) Name of Federal Program or Cluster
66.000 Consent De cree
27.027 Coronavirus State and Local Fiscal Recovery Funds Dollar threshold used to distinguish
between type A and type B program $750,000
Auditee qualified as low risk auditee? yes X no DRAFT
8 CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2025
SECTION II - FINANCIAL
STATEMENT FINDINGS
Reference Number
2025-001
Evaluation of Finding
Material Weakness
Condition
The Department received $3,000,000 in Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) for the year ended June 30, 2025 passed through the City of San Bernardino as a part of the American Rescue Plan Act (“ARPA”) Program. These funds were not included in the original Schedule of Expenditures of Federal Awards (“SEFA”) submitted for Single Audit Reporting purposes.
The Department received $1,586,000 in Hazard Mitigation Program Funds for the year ended June 30,2025 passed through the U.S. Department of Homeland Security. Due to an error, the program revenue was duplicated within the general ledger accounts, and a receivable was improperly recorded.
Criteria
Title 2, Subtitle A, Chapter II, Part 200, Subpart F, Section 200.510 of the Code of Federal Regulations requires that “the auditee must also prepare a schedule of expenditures of federal awards for the period covered by the auditee’s financial statements which must include the total federal awards expended as determined in accordance with Section 200.502.”
Cause of Condition
During the review of federal grants by the Department, the Department failed to include ARPA program expenditures on the SEFA for the current fiscal year. In addition, due to internal miscommunication, the Department double counted federal grant revenues.
Effect or Potential Effect of Condition
The Department’s Schedule of Expenditures of Federal Awards was understated by $3,000,000 due to the omission of federal ARPA grant. As a result of the internal miscommunic ation for the Hazard Mitigation Program, federal grant revenues, grants receivables, and ending Net Position were overstated by $1,586,000.
Recommendation
We recommend that the Department implement procedures to ensure proper identification of federal awards during the grant application or acceptance process to ensure that Federal Single Audit requirements are complied with for the Department major programs. We also recommend the Department add additional review procedures over the collection of grant revenue and receivable to ensure proper recognition and recording.
Client Response
[RESPONSE]
SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.
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9 1350 South “E” Street, San Bernardino, California 92408 P.O. Box 710, 92402 Phone: (909) 384-5141 FACSIMILE NUMBERS: Administration: (909) 453-6399 Customer Service: (909) 453-6396 Finance: (909) 453-6383 Engineering: (909) 453-6385 Corporate Yards: (909) 453-6389 Water Reclamation Plant: (909) 453-6395 Environmental & Regulatory Compliance: (909) 453-6391 Environmental Control: (909) 453-6394
CITY OF SAN BERNARDINO
MUNICIPAL WATER DEPARTMENT
CITY
OF SAN BERNARDINO
WATER BOARD
TONI CALLICOTT
President
Commissioners
WAYNE HENDRIX
DAVID E. MLYNARSKI
RIKKE V. JOHNSON
THOMAS BRICKLEY
MIGUEL J.
GUERRERO, P.E.
General Manager
ROBIN L. OHAMA
Deputy General Manager
STEVE R. MILLER
Director of Water Utility
KEVIN T. STEWART, P.E.
Director of Water Reclamation
JENNIFER L. SHEPARDSON
Director of Environmental &
Regulatory Compliance
CYNTHIA J. MOUSER
Director of Finance
“Trusted, Quality Service since 1905”
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30, 2024
2024-001 – This matter is considered resolved.
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